Petro-Canada Chief Executive Ron Brenneman also said the company’s refining and marketing operations could emerge mostly unscathed as the Canadian economy cools.

Canada will still show some economic expansion, even if the United States slips into recession, and growth in demand for petroleum products could be in the 1 percent to 2 percent range, down from the recent 2 percent to 3 percent, Brenneman said.

“I don’t think it will have a significant impact on our downstream results,” he said during a conference call.

In the quarter, net earnings in Petro-Canada’s downstream, or refining and marketing, business — known for its national chain of red and white gas stations — fell only slightly to C$81 million ($81 million).

That part of the industry is already being pressured in the United States by the slowdown in the economy and that has shown up in weaker profit margins at refineries.

Eastern Canada is more influenced by U.S. conditions than the West, FirstEnergy Capital Corp analyst William Lacey said. Petro-Canada has refineries in Montreal and in Edmonton, Alberta.

“The profitability of the refineries in Alberta has always been differentiated versus the Eastern Canadian refineries, and that’s really driven by the fact that there is no imported product out here,” the Calgary-based analyst said.

In the fourth quarter, Petro-Canada earned C$522 million, or C$1.08 a share, up from year-earlier C$384 million, or 77 Canadian cents a share.

Results included the impact of the company’s move to buy out forward oil sales contracts related to its 29.9 percent share of the Buzzard oil field in the North Sea for an after-tax total of C$1.1 billion. The hedges had obliged it to sell oil from the field at under a third of the market price.

Excluding unusual items, Petro-Canada earned C$513 million, or C$1.06 a share, lagging an average estimate of C$1.37 a share among analysts surveyed by Reuters Estimates.

Cash flow, a glimpse into an oil company’s ability to fund its operations, sank to C$17 million, or 4 Canadian cents a share, from C$991 million, or C$1.99 a share, due to the unwinding of the Buzzard hedges.

Full-year earnings were C$2.7 billion, or C$5.59 a share, up 60 percent from C$1.6 billion, or C$3.15 a share, in 2006.

Quarterly production averaged 410,000 barrels of oil equivalent a day, up 11 percent from 368,000. The volume was lower than had been expected by analysts, Lacey said.

Petro-Canada shares fell 97 Canadian cents, or 2 percent, to C$46.08 on the Toronto Stock Exchange, representing an increase of less than one percent over the past year.

The company plans to embark on several major projects in the coming years, including the C$14.1 billion first phase of the Fort Hills oil sands project in Alberta.

Chief Financial Officer Harry Roberts said capital needs will exceed Petro-Canada’s cash flow, so it expects to tap debt markets for the difference and halt most stock buybacks.

Petro-Canada is developing its steam-driven oil sands holdings and is nearing the completion of a C$2.2 billion retooling of its Edmonton, refinery to allow it to run oil sands-derived crude exclusively.

It also expects to make a decision before July on adding a C$1 billion coker unit to its Montreal refinery.